Peugeot gets government rescue as crisis deepens

PSA Peugeot Citroen unveiled a government-backed refinancing deal for its
lending arm as the struggling French automaker's financial position
deteriorated further, sending its stock to historic lows.

The Peugeot 208 GTi is powered by a turbocharged 200bhp petrol engine

By Reuters

11:03AM BST 24 Oct 2012

Europe's second-biggest car manufacturer said it was close to an agreement with creditor banks on €11.5bn of refinancing and had won state guarantees on €7bn in further borrowing for its Banque PSA Finance.

In return, it agreed to appoint government and union board representatives, halt dividend payments and scrap stock options for its top executives.

Peugeot shares were down 6.5pc at €5.45 in early trading, touching their lowest levels 1986. The stock has plunged 48pc this year.

Europe's car market has slumped as consumers find their budgets hit by unemployment and government austerity. The Peugeot rescue coincides with the news that Ford will close a factory in Belgium employing 4,300 workers as it tries to stem losses in the region.

Peugeot is scrapping more than 10,000 jobs and a domestic plant to stem losses approaching €200m a month, while developing future vehicles with General Motors to deliver more savings in five years' time.

But its restructuring efforts have proved to be too little, too late to counter the effects of Europe's brutal auto-market slump.

Reporting a 3.9pc declined in third-quarter sales, Peugeot warned that net debt would rise to €3bn by year end from €2.4bn on June 30, as an asset sell-off fails to keep pace with losses.

The debt outlook also reflects dimmer prospects for 57.4pc-owned parts business Faurecia, which cut its full year earnings forecast on Monday.

"The competitive environment is getting tougher, with increased pricing pressure and ongoing deterioration in the markets of southern Europe," Peugeot said.

Sales fell to €12.93bn in the three months ended September 30 as revenue from the core carmaking division dropped 8.5pc to €8.52bn.

The automaker cut its full-year European outlook to predict a 9pc market decline, worse than the 8pc contraction forecast last month.

Talks with new alliance partner General Motors have settled on four joint vehicle programmes, Peugeot said on Wednesday, outlining plans for joint development of two small cars, a compact crossover and a larger vehicle.

Peugeot turned to the French government after a Moody's credit rating downgrade earlier this month threatened to relegate the lending division to junk status, hobbling the sales financing business.

The refinancing deal will be "finalised in coming days" and comply with EU rules, chief financial officer Jean-Baptiste de Chatillon told reporters and analysts on Wednesday.

"It's not state aid, it's state support," de Chatillon said, adding that Peugeot would pay for the state guarantee. "It's priced at market values."

In addition to the board appointments, French Prime Minister Jean-Marc Ayrault said Peugeot was expected to trim its planned job cuts in return for the aid.

"The government has no intention of handing out gifts like this without return commitments," Ayrault said on France Inter radio.

The German state of Lower Saxony, a major Volkswagen shareholder, has said it would oppose the Peugeot rescue plan as a possible breach of EU rules.

Brussels has not yet been informed of any bailout agreement and cannot comment on the specifics of the case, a European Commission spokesman said on Tuesday.

In a separate statement on Wednesday, Peugeot said its board had agreed to refrain from proposing dividends, buying back shares or issuing stock options to executives as long as the company's debt benefits from state guarantees. ($1 = 0.7714 euros)